Inflation Data: October 2020

• 17 Nov 2020

Why in News

Recently, the wholesale price inflation data for the month of october 2020 was released.

• The wholesale price-based inflation is measured by Wholesale Price Index (WPI).

Key Points

• Wholesale Inflation:
  
  • Wholesale price inflation increased to the highest level in eight months, reaching 1.48% in October 2020, compared with 0% in October 2019 and 1.32% in September 2020.
    
    • It was driven by manufactured items as per the data released by the commerce and industry ministry.
  • The manufactured product group inflation hit a 19-month high of 2.1%, and core inflation accelerated to the highest level in 18 months at 1.7%.
  • Core Inflation excludes volatile goods from the basket of commodities tracking Headline Inflation. These volatile commodities mainly comprise food and beverages (including vegetables) and fuel and light (crude oil).
    
    • Core inflation = Headline inflation – (Food and Fuel) inflation
• Implication:
  
  • Increase in core inflation suggests improvement in demand conditions, which have improved after the Covid-19 related lockdown was lifted.
  • As a large part of this is due to festival related demand, it will be too early to term this as a general recovery.

Inflation

• Inflation refers to the rise in the prices of most goods and services of daily or common use, such as food, clothing, housing, recreation, transport, consumer staples, etc.
• Inflation measures the average price change in a basket of commodities and services over time.
• Inflation is indicative of the decrease in the purchasing power of a unit of a country’s currency. This could ultimately lead to a deceleration in economic growth.
• However, a moderate level of inflation is required in the economy to ensure that production is promoted.
• In India, inflation is primarily measured by two main indices — WPI (Wholesale Price Index) and CPI (Consumer Price Index) which measure wholesale and retail-level price changes, respectively.

Wholesale Price Index

• It measures the changes in the prices of goods sold and traded in bulk by wholesale businesses to other businesses.
• Published by the Office of Economic Adviser, Ministry of Commerce and Industry.
• It is the most widely used inflation indicator in India.
• Major criticism for this index is that the general public does not buy products at wholesale price.
• The base year of All-India WPI has been revised from 2004-05 to 2011-12 in 2017.

Source: TH